- Written by Associate Professor Eugene Ezebilo, Deputy Director, Research, Papua New Guinea National Research Institute Associate Professor Eugene Ezebilo, Deputy Director, Research, Papua New Guinea National Research Institute
The State of Emergency (SoE) measure has been implemented in Papua New Guinea (PNG) to minimise the spread of the COVID-19 pandemic. However, it has resulted in different impact on various sectors of the economy. Sectors that are strongly linked to the production of essential goods and services such the health sector benefits whereas sectors such as tourism and hospitality that produce non-essentials lose out. For people to be able to pay for goods and services they need to earn an income. However, the SoE restricted opportunities for short-term contract workers and those in the informal sector to earn an income. In fact, some people either lost their job or are not paid salaries, which decreases their ability to pay for goods and services. This has a negative impact on their welfare. The economic stimulus package of K5.7 billion was earmarked to boost PNG’s economy as a way to stimulate consumption of goods and service and minimise the tendency of the economy slipping into recession. Internal Revenue Commission (IRC) provides opportunity for business owners to pay corporate income tax and personal income tax in instalments.
Interventions used to boost the PNG economy
In the 2020 National Budget, Government of PNG (GoPNG) increased expenditure to K18.7 billion from K16.1 billion in 2019 with the hope of triggering an increase in the consumption of goods and services in the country. However, the COVID-19 pandemic triggered the need for more expenditure. The following interventions has been used by GoPNG to boost economy:
- Economic stimulus package. GoPNG has earmarked K5.7 billion as the economic stimulus package. If implemented properly, the stimulus package has the potential to stimulate an increase in the consumption of goods and service and the economy at large.
- As a result of the adverse impact of COVID-19 pandemic on businesses, the Internal Revenue Commission (IRC) has provided opportunity for potential extension for lodgement of corporate income tax. There is also the opportunity for business owners to pay corporate income tax and personal income tax in instalments.
How to make the interventions work well
- The economic stimulus package should be managed properly by using an effective and efficient mechanism to avoid using it for other purposes. In fact, effective monitoring and evaluation mechanisms should be put in place for checks and balances and accountability concerning how the fund is being distributed among sectors of the economy. The welfare of informal operators should be considered in planning interventions that the package should be used for.
- GoPNG should consider providing financial assistance to firms that have been hit harder by the impact of COVID-19, especially those in the tourism, hospitality, manufacturing, and transportation sectors of the economy.
- The IRC arrangements on instalment tax payment is a good development, the window for this opportunity is too short. It is important for IRC to continue the arrangement until such a time that a solution is found to the COVID-19 pandemic and the economy stabilises again.
- The economic stimulus package should be used to support more micro, medium and small enterprise (MSME) operators to create more jobs and income for people. Part of the fund from the package can be given to commercial banks for on-lending to MSME operators at low interest rates such as three percent.
At the time of writing this paper, GoPNG has successfully prevented an outbreak of COVID-19 in the country. Only nine confirmed cases of COVID-19 infections without any death have been reported in the country. However, the trade-off of the success has resulted in the hardship faced by businesses especially those associated with MSMEs and informal sector. It is challenging to minimise the spread of virus and at the same time minimise its impact on the country’s economy.
This article was first published in the Post-Courier’s 24 June 2020 edition and on its website’s commentaries and features page.